There are a lot of rules to remember when trading with Bollinger bands. When reading about how to use Bollinger bands it may seem rather difficult to implement, but truth be told, Bollinger bands are not only easy to use but insanely accurate at short term price movement.



20,2 are just preset default figures - The N-period value of 20 and the K-period of 2 are just presets and the most generic application of Bollinger Bands to a trading system. Depending on the market, manipulating the values within the Bollinger Band makes for smoother or more volatile changes in the indicator and provides a better indicator. For volatile markets, smoothing the indicator with a greater N-value will create a more static Bollinger Band.

Bollinger bands do not work alone. - This is what most people would have you believe, but I'm here to tell that an effective Bollinger band strategy can trade with the bands exclusively with incredible results. I do use other indicators but only as confirmation tools and tools for perspective. Bollinger bands work well alone provided you understand how to read them correctly.

The trend is your friend - Bollinger Bands work exceptionally well with trading ranges that have already been identified by a trader utilizing trend line techniques to form trading ranges. Using trend lines with a Bollinger Band system has proven to be highly profitable and predictable.

Climbing or falling with the bands. - In the text books it is presented that price will hit a band and revert to the mean, and while this is true a lot of times, very often price and the band will continue in the opposite direction following the bands. This is an incredible trading opportunity for the trader that understand the explosive possibilities of following the bands.

Bollinger bands are an excellent tool when used with other forms of technical analysis. If you are looking at other chart patterns or formations use Bollinger bands and the reversion to the mean in conjunction with the pattern for better accuracy. For example a bullish patterns penetrating the lower band(s) can together give you near perfect entry.

Bollinger Bands set great price targets - Many investors use the 50, 100, and 200 period moving averages to calculate price targets. Bollinger Bands can be used in just the same way. When price bounces off the top range and crosses the center line, the next move is likely to the lower line. Consider the bands for profit targets.

The N value in Bollinger band settings represents the look-back period. Any setting less than 10 is not recommended. A setting less than 10 is going to give you results that are basically equal to price action. Short term time frames require an N period adjustment, but not less than 10. Consider an N period of 13 for intraday charts and the standard 20 N period for daily charts.

Bollinger Bands do not always acclimate to trending - No trading system is ever the best during periods of high volatility. Though the Bollinger Band is designed to change in high volatility trading, it does not do so perfectly. Shorter term chart frames are more susceptible to proportionally high volatility.

Bollinger bands do not predict the future. In fact Bollinger bands are providing you with information only after price and not before. That said, the secret in trading Bollinger bands is your ability to understand and respond to Bollinger band signals as price approaches the bands. Watch closely how Bollinger bands responds to approaching price for clues on how to make the best trades.

Bollinger band width. The width of the bands is important. I use 3 set of bands personally. 2.0, 2.5 and 3.0 standard deviations on every time frame I trade. this allows me to see the extreme nature of the move or potential reversal. Using high probability candlestick patterns with band width is an excellent tool for identifying entry.